For any owner who has decided to put the business on the block, a crucialissue is how to retain key managers before and after the sale. If important employees decide to leave once it becomes clear that a sale is imminent, an ownerhas two concerns. In the short term, the value of the company may decrease; in the long term, the exodus may sap the ability of the new owners to run thebusiness.
Management contracts along with a bonus plan can help. Contracts generally last from one to three years, while discretionary bonuses are oftenstructured so that a manager gets a cash bonus when the sale is closed and guaranteed bonuses 12 and 24 months later. If the company buyer subsequentlyreplaces the manager, the buyer would still pay the bonuses covered in the agreement, although not the salary.
The best way to defuse problems is to include all managers in the negotiations, whether they're equity holders or not. "Open communication in a sale can gofarther than monetary rewards to ensure that key people remain with the company," notes Orville Mertz, a Milwaukee business broker. And Gary Roelke, asenior vice president in the Teaneck, N.J., office of Geneva Business Services, adds: "In the end, it may be more important for the buyer to establishincentives for managers. That goes a long way in forging an important alliance."